Currency Exchange

Client has a rental property in Argentina. The economy has been bad for years and is worse now. She converts Argentine pesos to US dollars and had been valuing all her rental income and expenses at the official rate.
Inflation is rampant. The government just severely restricted the purchase of US dollars since everyone is attempting to convert to dollars to stabilize their savings or to get the money out of the country. Also, many vendors accept dollars for goods and services, rather than pesos.
As a result, there is a thriving black market for US dollars operating in the open and charging about 5%-10% more than the official rate, changing daily, but without the quantity restrictions. For all intents and purposes, this has become the daily exchange rate. Can this rate be used in valuing her rental expenses?
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On Tue, 10 Sep 2019 12:00:51 EDT, Michael Bratt wrote:

Just as a practical matter, how would she substantiate it? I doubt a black marketeer will give her a receipt acceptable to the IRS.
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Stan Brown, Oak Road Systems, Tompkins County, New York, USA
http://BrownMath.com/
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On Wednesday, September 11, 2019 at 10:47:45 AM UTC-4, Stan Brown wrote:

As to using black market rates for conversion, it's not likely that would fly. Conversion to USD must be done on the date the income/expense occurs. If using readily available/documented rates, there is no problem. Using anything else would require some sort of backup documentation to have any chance of prevailing. (I'm not saying you could prevail, but that would be the starting point for trying to argue the point.)
That said, there are special rules when foreign income isn't readily convertible into USD. See IRS Pub. 54, Tax Guide for US Citizens and Resident Aliens Abroad, www.irs.gov/pub/irs-pdf/p54.pdf, for the details. I don't know if this situation qualifies, but it might be of assistance.
Ira Smilovitz, EA Glenwood Tax Services
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Argentina is a strange place. The informal exchange rate is known as the Blue Dollar rate and is published on many web sites like these:
https://www.ambito.com/contenidos/dolar-informal.html
https://bluedollar.net/informal-rate/
When I was in Argentina a few years ago I found that that rate offered by the guys saing "cambio cambio" was pretty close to the one on the web sites.
Does that change the analysis?
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John Levine, snipped-for-privacy@iecc.com, Primary Perpetrator of "The Internet for Dummies",
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On Wednesday, September 11, 2019 at 11:13:36 PM UTC-4, John Levine wrote:

I don't know as this is an area outside my expertise. On the other hand, situations like this have occurred in the past and there should be plenty of precedent defining what the IRS/Tax Court have allowed.
Ira Smilovitz, EA
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Citing Treas. Reg. 1.988-1(d)(1) and (4, here's what the IRS has to say:
"Official vs. Free Market Exchange Rate: The Treasury Regulations set forth the general rule that the spot rate shall be determined based on the prices at which the currency freely changes hands. However, in cases which the government rate and free market rate differ, the Regulations provide that the rate which ?most clearly reflects income? should be used for the spot rate. Generally, in these cases, the rate that most clearly reflect income is the free market rate. In the current worldwide environment, the countries listed on page 7 have an active free market or black market exchange rates that differ significantly from the government-imposed official rate."
You can see the whole document here:
https://www.irs.gov/pub/int_practice_units/fcu_c_18_02_01_06.pdf
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Stu
http://DownToEarthLawyer.com
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Thank you for your responses and ideas. The client keeps fastidious records and was, indeed, concerned that she would not have receipts from the "casual" black market. I was certain there would be a work-around in situations where using the street market had become the usual and necessary method of operating.
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